Med device tax repeal movement inches forward

A few months ago, I wrote about efforts, spearheaded locally, to roll back the ill-conceived medical device excise tax that funds the Affordable Care Act, also known as Obamacare. Those efforts received a big boost a few weeks ago when the Senate voted overwhelmingly to repeal the levy.

The excise tax, which came into effect on January 1, 2013, imposes a 2.3% duty on all top-line revenues of domestic medical device manufacturers and importers, many of whom justifiably fear, and even expect, that they will have to lay off engineers and developers as a result. Many local jurisdictions prevent the device makers from passing the cost increase along to hospitals or insurers, which means they’re effectively taking a 2.3% hit on revenues – not earnings, not profits, but revenues – and will have to adjust accordingly.

Troy Kirkpatrick, a spokesman for CareFusion, a major Carmel Valley-based medical device manufacturer, told me the company expects to lose $25 million annually. He expressed serious concern over the “burden [the tax] places on the medical device industry.” However, Kirkpatrick notes that CareFusion doesn’t “expect to shift the burden of this tax to our customers, who are also under pressure to adapt to other provisions within the Affordable Care Act.”

And as three industry reps noted in a recent New York Times letter, the “money to pay the tax comes from somewhere: reduced jobs, research cuts or, more, likely both.” To satisfy shareholders, these companies must trim their costs to compensate for the revenue they’re losing to the treasury, and costs, in this day and age, mean well-paying, high-skilled R&D jobs. In fact, the reps pointed to “thousands” who had already been laid off since the beginning of the year, and they reckon “the tax threatens as many as 40,000 American jobs.”

Luckily, someone in Congress is listening.

The excise tax “is a drain on innovation, on job creation and on our ability to provide ground breaking medical technologies to patients,” said Sen. Orrin Hatch, R-Utah, who co-sponsored a measure to repeal the tax with Sen. Amy Klobuchar, D-Minn., shortly after it passed by a 79-20 margin. “Today’s action,” Klobuchar observed, “shows there is strong bipartisan support for repealing the medical device tax, with Democrats and Republicans uniting behind our effort.”

The Senate vote follows favorable action in the House. After pushing an initial bill to repeal the tax through the House last fall, only to see it wither on the congressional vine, Rep. Erik Paulsen, R-Minn., has introduced a new measure that has substantial bipartisan support, including co-sponsor Ron Kind, D-Wis.

Here in California, where the Democratic caucus tilts further left than elsewhere, but where some 17% of all industry jobs are located, the California Healthcare Institute counts at least three Democratic congressmen who’ve signed on to the effort. Likewise, the entire House delegation from Minnesota – another state heavily populated by medical device companies – followed Paulsen’s lead in sponsoring the measure, capped by the Hatch-Klobuchar repeal legislation, which drew “yes” votes from senators as ideologically diverse as Massachusetts liberal Democrat Elizabeth Warren and Oklahoma conservative Republican Tom Coburn.

But that legislation isn’t a cure-all. In fact, because the amendment was attached as a rider to the Senate budget, which is dead on arrival in the Republican-controlled House, it carries largely symbolic weight.

More importantly, it called for “the repeal of the 2.3 percent excise tax on medical device manufacturers, by the amounts provided in such legislation for that purpose, provided that such legislation would not increase the deficit.”

In other words, the amendment elicited support from such an ideologically diverse group of senators because it pledged, by its own terms, not to increase the deficit, i.e., to replace the repealed excise tax with additional revenue from elsewhere – a difficult task.

Still, in polarized Washington, drawing such extraordinary support from such a wide-ranging contingent – both pro- and anti-Obamacare – has to count as a major success. And opponents of the excise tax have been emboldened in their efforts to abolish it. “For the first time,” Hatch observed, in the wake of the repeal vote, “Democrats and Republicans have come together in recognizing how bad this tax is. We cannot stop here – we must continue the fight to get rid of this tax.”

Amen, Senator.

Rosen is an attorney in Carmel Valley. Contact him at michaelmrosen@yahoo.com